4 ways to protect your business assets and inheritance on death
4 WAYS TO PROTECT YOUR INHERITANCE TO FAMILY MEMBERS
Most families want to protect their business, their financial assets and their family legacy in the most effective way possible – both for tax and intention of the assets. However, there are times when certain family members may not make the best decisions when placed in charge of a family business and its assets.
This is often the case for many families and careful consideration must be made to protect vulnerable or dependent family members. The complexity of family business matters and tax implications can make planning for this type of situation more difficult.
The following options are available to ensure your legacy is managed well with vulnerable family members.
Pension Death Benefits
Children can continue to receive benefits from a pension after death occurs.
A superannuation pension can be paid efficiently in regard to taxes if it is paid from a self-managed superannuation fund. This makes the pension outside the reach of the Superannuation Complaints Tribunal.
Also, self-managed superannuation funds are not considered a part of your estate making the pension protected from any disputes that may arise from challenges to your will.
This is especially important for blended families where there are two sets of children. This protects the youngest or second set of children who may not be close with their older siblings.
There are also significant tax benefits. If structured properly, a pension from an adult over 60 to a child can be tax-free.
Special care needs to be taken when creating documents regarding the commencement of the pension. This is to ensure that tax benefits are considered and that the pension will be properly executed when death occurs.
Disability Trusts
A special trust can be created for family members who suffer from a severe disability. The purpose of this trust would be to address any future needs of the disabled member.
A major benefit of a special disability trust is that the funds invested in disability trusts do not have to submit to Centrelink assets testing.
Also, capital gains tax concessions can occur if assets are transferred into a disability trust, especially if the asset is a home that is to be used as a primary residence.
Testamentary Trusts
A testamentary trust is a trust in which assets are transferred into a trust instead of passing directly to a child. The child, in turn, has control over the trust.
This is a very popular trust because it creates tax effective results for the children and allows family control. A testamentary trust also protects the legacy of the parents from outside forces, such as the bankruptcy of a child.
The main tax benefits of a testamentary trust is that trust income can be directed to different family members. Different types of income can be directed in such a way that family members who reap the greatest tax benefit or pay the least taxes, receive the income distribution. Children are taxed as adults when they receive income from a testamentary trust.
In some cases, a testamentary trust can protect a child from a matrimonial attack. This protection is valid; however, the family court possesses a lot of power in this area. The family court has been increasing their power to examine testamentary trust.
Protective Testamentary Trusts
There are certain cases in which it is better if children are not put in control of a testamentary trust. This usually arises if a child has a drug addiction, is an infant, is mentally impaired, or is incarcerated.
In a protective testamentary trust, the trust is controlled by a family member who acts in the best interest of the child. Control of the trust can also be given to a trustee company that is certified to act as an investment company on behalf of the trust.
The same tax benefits explained in the previous section also apply to protective testamentary trusts.
In Conclusion
As with all decisions regarding your family business, it is imperative that you have a team of outside tax, legal, and business professionals working collectively to address the needs and goals of your business.
If you need assistance with estate planning or inheritance protective, please don’t hesitate to contact our team of Perth based expert tax, business and family business advisors at www.westcourt.com.au
Most families want to protect their business, their financial assets and their family legacy in the most effective way possible – both for tax and intention of the assets. However, there are times when certain family members may not make the best decisions when placed in charge of a family business and its assets.
This is often the case for many families and careful consideration must be made to protect vulnerable or dependent family members. The complexity of family business matters and tax implications can make planning for this type of situation more difficult.
The following options are available to ensure your legacy is managed well with vulnerable family members.
Pension Death Benefits
Children can continue to receive benefits from a pension after death occurs.
A superannuation pension can be paid efficiently in regard to taxes if it is paid from a self-managed superannuation fund. This makes the pension outside the reach of the Superannuation Complaints Tribunal.
Also, self-managed superannuation funds are not considered a part of your estate making the pension protected from any disputes that may arise from challenges to your will.
This is especially important for blended families where there are two sets of children. This protects the youngest or second set of children who may not be close with their older siblings.
There are also significant tax benefits. If structured properly, a pension from an adult over 60 to a child can be tax-free.
Special care needs to be taken when creating documents regarding the commencement of the pension. This is to ensure that tax benefits are considered and that the pension will be properly executed when death occurs.
Disability Trusts
A special trust can be created for family members who suffer from a severe disability. The purpose of this trust would be to address any future needs of the disabled member.
A major benefit of a special disability trust is that the funds invested in disability trusts do not have to submit to Centrelink assets testing.
Also, capital gains tax concessions can occur if assets are transferred into a disability trust, especially if the asset is a home that is to be used as a primary residence.
Testamentary Trusts
A testamentary trust is a trust in which assets are transferred into a trust instead of passing directly to a child. The child, in turn, has control over the trust.
This is a very popular trust because it creates tax effective results for the children and allows family control. A testamentary trust also protects the legacy of the parents from outside forces, such as the bankruptcy of a child.
The main tax benefits of a testamentary trust is that trust income can be directed to different family members. Different types of income can be directed in such a way that family members who reap the greatest tax benefit or pay the least taxes, receive the income distribution. Children are taxed as adults when they receive income from a testamentary trust.
In some cases, a testamentary trust can protect a child from a matrimonial attack. This protection is valid; however, the family court possesses a lot of power in this area. The family court has been increasing their power to examine testamentary trust.
Protective Testamentary Trusts
There are certain cases in which it is better if children are not put in control of a testamentary trust. This usually arises if a child has a drug addiction, is an infant, is mentally impaired, or is incarcerated.
In a protective testamentary trust, the trust is controlled by a family member who acts in the best interest of the child. Control of the trust can also be given to a trustee company that is certified to act as an investment company on behalf of the trust.
The same tax benefits explained in the previous section also apply to protective testamentary trusts.
In Conclusion
As with all decisions regarding your family business, it is imperative that you have a team of outside tax, legal, and business professionals working collectively to address the needs and goals of your business.
If you need assistance with estate planning or inheritance protective, please don’t hesitate to contact our team of Perth based expert tax, business and family business advisors at www.westcourt.com.au
We know accountants are sometime viewed as another overhead but at Egan & Co we prefer to see ourselves as a partner, adding real value to the business. Tax Returns Dublin
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